Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. Yves Smith: Banks Sitting on Bad MortgagesMore reason to view Case-Shiller data with caution: increased buying activity is only one side of the problem.Naked Capitalism Tuesday, August 25, 2009 Banks Sitting on Bad Mortgages, And They Aren't Getting Any Better Fitch released an analysis that shows that mortgage cure rates, meaning the proportion of borrowers who manage to get current once they fall behind, have tanked. From the Wall Street Journal: The report from Fitch Ratings Ltd., a credit-rating firm, focuses on a plunge in the "cure rate" for mortgages that were packaged into securities. The study excludes loans guaranteed by government-backed agencies as well as those that weren't bundled into securities. The cure rate is the portion of delinquent loans that return to current payment status each month. Fitch found that the cure rate for prime loans dropped to 6.6% as of July from an average of 45% for the years 2000 through 2006. For so-called Alt-A loans -- a category between prime and subprime that typically involves borrowers who don't fully document their income or assets -- the cure rate has fallen to 4.3% from 30.2. In the subprime category, the rate has declined to 5.3% from 19.4%. "The cure rates have really collapsed," said Roelof Slump, a managing director at Fitch. Because borrowers are less willing or able to catch up on payments, foreclosures are likely to remain a big problem. Barclays Capital projects the number of foreclosed homes for sale will peak at 1.15 million in mid-2010, up from an estimated 688,000 as of July 1. Ouch. On top of that, Greg Weston looked at the underlying New York Fed data for Fitch's comment, and found another sobering factiod, namely that banks are not foreclosing. The reason most often given is that the bank doesn't want to write the mortgage down even further (we've heard it bandied about for loss severities is 60% and Weston had a chart that shows it is worse for subprime, at 70%with Alt-As not as bad at 50%), so 60% is a representative level) but another reason is that if the bank does not take possession, the taxes are still the owner's responsibility. Read the rest of the post Labels: financial crisis, foreclosures, housing market, mortgage cure rates, Naked Capitalism, Yves Smith Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). |
